• Economic growth?is a central macroeconomic aim of most governments
• Many developed nations (UK included) have an annual target rate of 2-3%
  • This is considered to be?sustainable growth
  • Growth at this rate is?less likely?to cause excessive?demand pull inflation
• Politicians?often use it as a metric of the effectiveness of their?policies?and leadership
• Economic growth has?positive impacts?on confidence, consumption, investment, employment, incomes, living standards and government budgets

A diagram showing the economic growth rate of the UK since 1998
Source:?Macrotrends

A Table Highlighting Some of the Economic Growth Trends in the UK Since 1998

• The target unemployment rate for the UK is 4-5%
• This is close to the?full employment level?of labour (YFE)
  • There will always be a level of?frictional unemployment
  • This makes it impossible to achieve 100% employment
• Different economies have?different rates?that are considered to be close to the full employment level of labour e.g. Japan's level is about 2.5%
• Within the broader?unemployment rate, there is an?increased emphasis?on the unemployment rate within different?sections of the population
  • E.g.?youth unemployment, ethnic/racial unemployment by group
    • In 2021, black unemployment in the UK was 11% and white unemployment was 4.%

A diagram showing the unemployment rate in the UK from 1998 - 2020
Source:?Macrotrends

• Unemployment tends to be?inversely proportional to real GDP?growth
  • When real GDP increases, unemployment falls
  • When real GDP decreases, unemployment rises
• Unemployment in the UK remained?relatively high for the six years?following the?global financial crisis?of 2007

• The UK has a?target?inflation?rate of 2% using the?Consumer Price Index (CPI)
• A low rate of inflation is desirable as it is a?symptom of economic growth
• The different causes of inflation (cost push?or?demand pull) require different policy responses from the Government
  • Demand-side policies?ease demand pull inflation
  • Supply-side policies?ease cost push inflation

A diagram illustrating the inflation rate in the UK from 2012 to 2021 using the CPI

• In the UK, a?continual deviation?from the target of 2% would?not be considered as stable
  • An inflation rate in April 2022 of 4-5% was considered to be unstable, eroding household?purchasing power
• A?low & stable rate of inflation?is important as it
  • Allows firms to?confidently plan?for future investment
  • Offers?price stability?to consumers

• The?Balance of Payments (BoP)?for a country is a record of all the financial transactions that occur between it and the rest of the world
  • The current account focuses mainly on the financial transactions related to?exports and imports?of goods/services
• Governments aim for?Balance of Payments equilibrium on the Current Account
  • If?exports > imports?it will create a?current account surplus
  • If?imports > exports, it will create a?current account deficit
    • Each one of these conditions has advantages/disadvantages associated with it
    • However, a current account deficit is more problematic in the long-run
• The?UK?has traditionally run a?small deficit
  • As a?% of GDP?the UK current account deficit is insignificant so has not been problematic

A diagram showing the UK Trade Deficit from 1998 to 2020. The bottom graph illustrates the trade deficit as a % of GDP and the top one illustrates the absolute value expressed in US$
Source:?Macrotrends

• In the diagram above the?trade deficit has been falling steadily?since 2016
  • During this time period the?value of exports?was increasing slightly faster than the?value of imports

• The?Government Budget?is presented annually and includes the forecasted?revenue and expenditure
  • Revenue comes from the sale of assets, taxes, sales revenue from goods/services e.g. train tickets
  • Expenditure includes?all government spending?such as public sector salaries; unemployment benefits; spending on public & merit goods
• The UK Government aims to run a?balanced budget
  • If?expenditure > revenue, there is a?budget deficit
  • Any deficit has to be financed through?public sector borrowing
  • Any borrowing is added to the?public sector debt?(Government debt)
• If the UK?Government debt?becomes too high (expressed as a % of GDP), then lenders begin to?lose confidence?in the Government's ability to?repay the debt
  • The Government then has to raise the?interest rate?it offers to lenders, which makes?borrowing?more expensive
• The UK Government has worked extremely hard recently to?reduce the budget deficit?and run a balanced budget
  • Covid 19 expenditure?has eroded the progress they made

Government deficit (net borrowing) as a percentage of GDP - 1973 to 2021
Source: ONS

• Reducing the?deficit?can mean?tough choices?for the economy
  • E.g. cutting public sector pay;?raising taxes; reducing unemployment benefits; reducing spending on?merit goods
• The significant?deficit increase?in the 2020/21 budget due to?Covid 19?will need to be repaid
  • The short-term help offered through the crisis may generate long-term pain as the Government seeks to?cut future spending?so as to repay the debt

• In April 2021, the UK Government stated that their?environmental aim?was to?reduce emissions by 78%?by 2035
  • This reduction is based on the emission levels of 1990
  • It is one of the most?ambitious climate change targets?globally
  • It includes the UK’s share of?international aviation?and?shipping emissions
• Broader?environmental aims?include
  • A focus on?sustainability
  • The reduction of?negative externalities of production
  • 100% energy from?renewable sources?by 2035

• The reduction of?income inequality?remains a high priority
• High levels of income inequality?create social unrest?and can ultimately lead to revolutions
• Income inequality is measured using the?Gini Coefficient
  • Most developed economies have a?Gini target of 0.3-0.4
• Perfect income equality?is not desirable as it removes the?incentive to work?and study
• Unchecked capitalism?has a natural outcome of?high income inequality
  • The wealthy are able to keep buying?factors of production
  • The?concentration of ownership?becomes more and more narrow with fewer individuals owning the bulk of the world's wealth
• There is a need for the UK government to?intervene?to maintain acceptable levels of income inequality

A diagram showing the general increase in income inequality in the Uk since 1977
Source:?ONS

• In the diagram above, the?Gini coefficient?has been multiplied by 100 to create percentage
  • 34% would equate to a coefficient of 0.34
• Absolute poverty?is worse in developing countries. However, In a developed economy such as the UK, a 1% increase in income inequality can push a lot more households into absolute poverty